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CGT, no G&T


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I don't understand, why would a person "pay themselves by dividends" rather than just a normal wage or salary?

Because the tax on dividends is lower.

If you are a business owner, you could pay yourself a £50,000 salary - or you could pay yourself a £0 salary, which leaves £50,000 more cash in the business, that you pay yourself (as the sole shareholder) as a dividend, and pay yourself 32.5% tax and no NI, instead of 40% tax and 3% NI.

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You raised a good point on that thread when you said a land value tax would be better, as it ENCOURAGES sales.

I agree!

I still think this CGT change is a good move though, because whilst it discourages existing BTLers from selling, it pretty much stops BTL becoming attractive in the first place for anyone in the future - you won't see people "snapping up" any more BTLs now.  It's a slow burner, but a good move.

Discourages but doesn't stop them being forced sellers, which is what the market needs now to find true value.

Try holding onto houses and claiming any benefits

Try to pay double or even triple Council Tax surcharges

Try to MEW on an empty house

Try to save up to spend on the additional maintenance caused by damp, break ins, and vandals (some empty BTLs near me were turned into Cannabis farms)

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Since the economy needs people to work, spend and save so as not to be a drain on the public purse can't understand why they clearly are not making it in peoples best interests to do so......wealth gained from speculating to accumulate has been the only game, now it is the time to re-look at taxing that free gain...... ;)

 

 

You raised a good point on that thread when you said a land value tax would be better, as it ENCOURAGES sales.

I agree!

I still think this CGT change is a good move though, because whilst it discourages existing BTLers from selling, it pretty much stops BTL becoming attractive in the first place for anyone in the future - you won't see people "snapping up" any more BTLs now.  It's a slow burner, but a good move.

And despite my ‘it stops sales’ position I get and agree with both you guys. 😉

Tax is a tricky balance between doing what is fundamentally right and actually collecting some extra dosh....and it’s not easy. I guess the ‘fairest’ and ‘simplest’ way is to tax all income, gains, payments, gifts and dividends as one whole amount...no work around or loopholes. Not sure how popular that would be with TPTB though. 😆😆😆

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Sorry you've lost the plot. You have clearly never worked in a buisness as a non employee. 

85k is the de minimus limit for vat registerstation. 

You charge a company vat by making a taxable supply they reclaim the vat in full, unless exempt or partially exempt which most are not. Financial services and charities and food being the majority of exemptions. 

 

Additionaly your shock that a company cash is not their own shows a lack of understanding of basic company law and accounting 

Learn before you claim divis should be covered in support 

Well done, you have finally got there, yes the company has to pay VAT and all the other costs and taxes.  They may reclaim the VAT, you cannot reclaim VAT charged.  I know because I’m VAT registered.  

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Sorry that is really not accurate. Let's take a one man band company. 

They pay vat if turnover is over 85k charged and reclaimed by a customer. So net nill unless working for financial services or exempt Co which most won't be. 

Also note you are above the 50k limit for self employed grant anyway at this level. 

 

They pay Corp tax on profits after all costs etc including directors salary - again pay yourself a salary and get furlough and get you don't pay Corp tax. 

You only pay divi tax at that rate if a higher rate taxpayer otherwise its 7.5% with a 2k tax free allowance.. Given the whole point is they are not paying a salary to themselves they are erm not a higher rate taxpayer. If they were furlough yourself.. You also seem confused as if you pay tax twice on divi and salary, you don't. 

 

They don't own the cash in the company??! Of course not it's involved gross and the company is a totally seperate legal entity to them. They need to pay tax to extract it to them the same as an employee or shareholder of BP. No different. 

They just chose the lowest possible tax route out avoiding the social security net by paying majority divis as if they are a shareholder not employee of the legal entity. As I said support that support the BP share owning pensioner. Its nonsense 

Spot on CaptainB. From a chartered accountant. 

 

Utter tosh interspersed with the odd facts.  I particularly enjoyed your Alice in Wonderland assessment of the VAT system

Go on then Satsuma, explain how it's wrong?

 

 

Sorry you've lost the plot. You have clearly never worked in a buisness as a non employee. 

85k is the de minimus limit for vat registerstation. 

You charge a company vat by making a taxable supply they reclaim the vat in full, unless exempt or partially exempt which most are not. Financial services and charities and food being the majority of exemptions. 

 

Additionaly your shock that a company cash is not their own shows a lack of understanding of basic company law and accounting 

Learn before you claim divis should be covered in support 

Pretty much what was going through my head when I read the reply :) nicely put. 

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The avoidable tax. 

It sounds good but as I mentioned on another thread this discourages sales.

If you own a house ‘worth’ £500k and knew if you sold it you would get £420k (ie in this made up example of mine CGT is £80k) would you sell? What happens is the house is stripped out for an overdue refurb, sold onto the kids, family or friend for £350k (genuine valuation done) and passed on. 

Not saying CGT increases are fundamentally a wrong idea rather it might not increase revenue....it depends on the finer detail. 

It’s a funny tax. On shares Etc it is completely avoidable because a £12.5k allowance with partial sales each year completely tax free Profits. £12.5k (or £25k a couple) is a huge amount of pure profit for 99% of the population. House differ though because they can’t be split. 

This will make an interesting watch but large CGT charges may make property become yielding assets to be past on rather than saleable assets. 

Hopefully some decent price falls by the removal of all the daft house price props should help mitigate CGT 😂😉

I think the proposal is to leave everything as is bar the rates so wont touch main homes

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Well done, you have finally got there, yes the company has to pay VAT and all the other costs and taxes.  They may reclaim the VAT, you cannot reclaim VAT charged.  I know because I’m VAT registered.  

You what? Scary you are VAT registered and dont get the basic accounting company /law.

 

I charge £10k a month + vat to a client. Thats £12k invoice. My customer reclaims the £2k leaving a net cost to them of £10k.

I charge £10k a month no vat to a client. Thats £10k invoice. Net cost to them of £10k.

Unless the customer is partially exempt / or fully exempt which most wont be there is no "cost" or tax to incur. The customer doesn't care - at worst its 1 qr cashflow.

 

If you are selling to individuals dont register below the £85k band as a one man guy. If you get more in than £85k sales, then well done, you wouldnt get a grant as an indivdual anyway - limit £50k.

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You what? Scary you are VAT registered and dont get the basic accounting company /law.

 

I charge £10k a month + vat to a client. Thats £12k invoice. My customer reclaims the £2k leaving a net cost to them of £10k.

I charge £10k a month no vat to a client. Thats £10k invoice. Net cost to them of £10k.

Unless the customer is partially exempt / or fully exempt which most wont be there is no "cost" or tax to incur. The customer doesn't care - at worst its 1 qr cashflow.

 

If you are selling to individuals dont register below the £85k band as a one man guy. If you get more in than £85k sales, then well done, you wouldnt get a grant as an indivdual anyway - limit £50k.

You have to charge VAT to the customer if VAT registered, that’s a 2k cost to me in the example above

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You have to charge VAT to the customer if VAT registered, that’s a 2k cost to me in the example above

Its not a cost to you at all. Say the custgomer has a budget of £10k for your services.

 

You would not have been able to charge £12k fee without VAT to that customer - as thats a £12k cost to them.

You can charge £10k + VAT (£12k) as they reclaim the VAT leaving a £10k cost to them.

 

There is no cost to you being VAT registered, you have grossed up your invoice for VAT and passed it onto HMRC and the customer has reclaimed.

 

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Well I was thinking of selling a place next year, good starter home, nice area. I'll keep it now. 

 

Will only pay tax on any gain, what never had will never miss......most workers have lost money, lost hours, savings are being eroded daily, train fares increase each year by more than inflation when wages very often do not.;)

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Fair enough, be interesting to see how it plays out for others

FWIW I calculated my CGT on it the other day and was happy to pay (I've paid a lot of big tax bills in my time). Never saw it as a money spinner, bought it originally for mum. But doubtless there will be plenty of people who do need to sell and will bite the bullet. 

Next stop inheritance tax? 

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Its not a cost to you at all. Say the custgomer has a budget of £10k for your services.

 

You would not have been able to charge £12k fee without VAT to that customer - as thats a £12k cost to them.

You can charge £10k + VAT (£12k) as they reclaim the VAT leaving a £10k cost to them.

 

There is no cost to you being VAT registered, you have grossed up your invoice for VAT and passed it onto HMRC and the customer has reclaimed.

 

The point is VAT is paid out of my business along with the other taxes, your point was Freelancers don’t contribute.  We do, each year we pay 19% Corp tax, 20% VAT on sales, up to 38% on dividends and also income tax.  The VAT is a cost that those below the threshold don’t have.  There is also the cost of paying an accountant to collect and pay VAT to the government.  

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FWIW I calculated my CGT on it the other day and was happy to pay (I've paid a lot of big tax bills in my time). Never saw it as a money spinner, bought it originally for mum. But doubtless there will be plenty of people who do need to sell and will bite the bullet. 

Next stop inheritance tax? 

Who knows, more tax is the next stop, full stop

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Yes, I'm feeling smug.

I worked out this was coming a long time ago. The suppression of wages and reduction in interest rates over time has meant that taxes on capital gains were bound to be needed.

If you measure the success of a man as earning more and being wealthier than his wife's sister's husband, then by this measure I am sorted - particularly after this news!!!

Said  beleaguered brother-in-law is in the property industry (retail) and despite furlough has had to let staff go and has all his wealth (no pension) tied up in the business and has had an interest only mortgage for the last 20 years. 

https://www.brainyquote.com/quotes/h_l_mencken_161801

Wealth - any income that is at least one hundred dollars more a year than the income of one's wife's sister's husband.

H. L. Mencken

 

 

 

 

Sounds like he's all show and no go.

Being poor with no assets is a good way to go to avoid this. Works for me.

 

 

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The point is VAT is paid out of my business along with the other taxes, your point was Freelancers don’t contribute.  We do, each year we pay 19% Corp tax, 20% VAT on sales, up to 38% on dividends and also income tax.  The VAT is a cost that those below the threshold don’t have.  There is also the cost of paying an accountant to collect and pay VAT to the government.  

My point is you dont get how tax works. You are double and sometimes triple counting.

Say company of sales of £50k - the same as the limit for the self employed grant.

If you pay a £50k salary to yourself... there is.. guess what! No Corp tax as no profit, no vat on sales as under the limit, no dividends to tax... so the same as an employee on £50k.

If you chose to do 100% dividends, you would get taxed at 19% on your profits of £50k corp tax and then dividend tax of free £2k and then 7.5% lower rate.. you wouldnt have income tax as no salary.

 

The choice between the former and the latter, or any combination is down to the freelancer for tax optimisation. Picking all dividends to avoid NI is their choice.. to avoid contributing tax into the NI pots.. having made that choice its hardly surprising that element is not covered by the government for support. Its asking to be paid out when you havent paid in.

 

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Yes lots of wrappers will be ripped off I think, ISA, VCT, even pensions allowance. 

You're right on the luxury tax aspect. CGT impacts precious few people compared to income tax too. 

Yes, been expecting that for a while. Probably removing the top rate tax relief and flattening to 20%.

Fortunately for me my pension fund is now big enough to not have to significantly worry about that too much. I need to move into ISAs, so no real change.  I can't touch my pension for 10 years and have over £600k in it. Even a modest 5% annual growth will put me into the 55% pension super tax for breaching the lifetime allowance  - the last 10 years saw my funds triple, if that happens again I'll have a bill of at least £200k on that chunk of money (assuming the lifetime limit rises with inflation).

 

 

Edited by Mikhail Liebenstein
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Yes lots of wrappers will be ripped off I think, ISA, VCT, even pensions allowance. 

You're right on the luxury tax aspect. CGT impacts precious few people compared to income tax too. 

Well considering all the printed money ended  up in assets it the least they could do pandemic or no pandemic.

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My point is you dont get how tax works. You are double and sometimes triple counting.

Say company of sales of £50k - the same as the limit for the self employed grant.

If you pay a £50k salary to yourself... there is.. guess what! No Corp tax as no profit, no vat on sales as under the limit, no dividends to tax... so the same as an employee on £50k.

If you chose to do 100% dividends, you would get taxed at 19% on your profits of £50k corp tax and then dividend tax of free £2k and then 7.5% lower rate.. you wouldnt have income tax as no salary.

 

The choice between the former and the latter, or any combination is down to the freelancer for tax optimisation. Picking all dividends to avoid NI is their choice.. to avoid contributing tax into the NI pots.. having made that choice its hardly surprising that element is not covered by the government for support. Its asking to be paid out when you havent paid in.

 

This is the same tired old argument used to justify ignoring freelancers and also small business, you ignore my case where the business is over the 85k threshold to register for VAT.  Lets leave it there, Im not talking about the person avoiding tax, I talking about the many growing legit companies left out

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There is also the cost of paying an accountant to collect and pay VAT to the government.  

Get yourself Xero £24 a month ramping my third business now in six figures T/O  why pay your accountant for something you can do in 30 mins over a cup of coffee? You don't need much of an accountant  for sub seven figure T/O

My last bill was £1000 that was for all the accounts  and 4 personal tax returns which since we are old buggers with previous businesses are probably more complex than than the company accounts

Biggest mistake small businesses make leave it to the accountant or take advice from a bank - foxes  in the chicken coop 

You also get the use of the money for three months for free 

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Yes, been expecting that for a while. Probably removing the top rate tax relief and flattening to 20%.

Fortunately for me my pension fund is now big enough to not have to significantly worry about that too much. I need to move into ISAs, so no real change.  I can't touch my pension for 10 years and have over £600k in it. Even a modest 5% annual growth will put me into the 55% pension super tax for breaching the lifetime allowance  - the last 10 years saw my funds triple, if that happens again I'll have a bill of at least £200k on that chunk of money (assuming the lifetime limit rises with inflation).

 

 

I wish I was a smart as you when I was your age with this stuff done ok could of been better - not sarcasm a compliment admire your planning 

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This is the same tired old argument used to justify ignoring freelancers and also small business, you ignore my case where the business is over the 85k threshold to register for VAT.  Lets leave it there, Im not talking about the person avoiding tax, I talking about the many growing legit companies left out

Thats fine i dont think an argument is "tired" just because it has always been factually correct.

As for over £85k, that's too high an income for furlough (£30k) or a self employed grant (£50k). Everyone got left out at that pay grade.

 

Brings to a bigger argument going forward as to why / how the tax rises will fall on higher earners to pay for something they didnt receive. 

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